EU Shows Pragmatism in a Difficult Market

Financial News, August 11, 2002 | Go to article overview

EU Shows Pragmatism in a Difficult Market


Byline: Patrick Blum in Brussels

Europe's competition authorities are showing increased caution in response to tightening market conditions, although officials insist the change will not mean relaxing their rules.The investment slump in the telecoms sector forced the European Commission last week to change its mind and allow the break-up sale of Italian mobile phone operator Blu, although it had previously firmly argued against splitting the company.

The move was welcomed by lawyers as a sign of pragmatism and growing caution by the Commission.

The decision goes back to a deal agreed last September, when the Commission approved the acquisition of controlling stakes in Telecom Italia by Pirelli and Edizione Holding.

Edizione was to have been forced to sell its stake in Blu, so the latter could be maintained as a going concern.

The Commission's reasoning was that Blu should be sold as a whole to keep a competitor in the market and to stop TIM, Italy's largest mobile phone company owned by Telecom Italia, from controlling Blu.

In May, Mario Monti, the EU competition commissioner, insisted that Blu's sale as a going concern was essential for the Commission's approval of the takeover and he criticised the merger parties for not trying hard enough to find a buyer.

In the end, however, no buyer could be found. The telecoms sector's subsequent slump made it impossible to meet the initial commitment.

Yet refusal to approve the sale would have put the original merger agreement at risk while Blu's survival was in doubt.

The Commission was effectively faced with a no-win situation. If Blu collapsed, it would strengthen the market dominance of the biggest mobile operator and reduce choice, which was exactly what it sought to avoid in the first place.

By accepting a break-up sale with certain conditions, the Commission falls short of one of its original objectives, which was to maintain market competition.

The commission says the decision does not signal a new trend or the adoption of a more flexible approach to market dominance issues, but that it was a sensible response to an unusual situation.

Michael Tscherny, EU competition spokesman, says: "What else could we do?" The Commission can apply more pressure to find a buyer, as it did in the spring, but when it finds that there is no buyer, it has to respond accordingly, he says. …

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